Jubilant Foodworks | Buy | Sell | Hold
Why BUY?
1 Yrs Price Movement.
Jubilant Price Correction.
Why I am considering Jubilant Food Works as a BUY
- Stock correction steeper than Indices. Jubilant has corrected ~31% from its peak last year vs a stable performance by the Indices (Nifty 50, Nifty Consumption and Nifty Midcap 100 which was -2%, 6% and -2% during the same period). The Company benefitted from tailwinds of increased online ordering during covid. The stock has corrected due to concerns on pace of growth post covid and concerns on execution post step down of CEO Pratik Pota who was instrumental in driving its growth over the last few years. However with the new leadership i.e Mr. Sameer Khetarpal (ex-Amazon, McKinsey, HUL) effective September 5, 2022, further clarity of execution strategy will emerge.
- Aggressive store expansion – Potential of 3000 stores near term. The company sees an opportunity of 3000 stores in the near term. It has a powerful brand and will further grow and cement its presence in the market. This will be through entering new towns and going deeper into existing cities through a fortressing strategy. Its fortressing strategy (splitting of stores) may have short term impact but in the long term is able to generate stronger revenue growth, a stronger EBITDA growth, a stronger customer experience, and generate higher efficiencies and lower costs. The increasing reach has helped reduce average delivery time with ~70%+ of delivery orders being delivered under 20 minutes. The Company continued with its strong store opening momentum and opened 58 new Domino’s stores in Q1FY23 taking the network strength for Domino’s in India to 1,625 stores. It has a target of 250 store openings in FY23, highest in the QSR space.
- Future growth engines. The Company continues building on its core competence. However, it is also building a portfolio of new brands across multiple cuisines. It aims to own a much larger share of occasions and create new profitable growth vectors. In FY22, it introduced the iconic brand Popeyes with the launch of flagship restaurants in Bengaluru. Chicken is one of India’s largest and fastest-growing categories. Management sees a potential of opening around 250-300 Popeyes stores in the medium term.
- Introduction of loyalty program to drive frequency. Jubilant launched its loyalty program – Domino’s Cheesy Rewards in Q1FY23. It has a milestone-based construct which provides the customer a free pizza after every 6th eligible order. Management believes the loyalty program will become a significant driver of growth, new customer acquisition and retention. Further, this will help drive greater frequency on its own app as the rewards can be received across platforms but can only be redeemed through the Domino’s app.
- Technology Moat
FREE PIZZA AFTER EVERY 6 ORDERS
The pandemic accelerated the consumer shift towards online food ordering which helped make non-home food much more acceptable outside special occasions, especially in the smaller towns. While Dine-In and On-Premise consumption has returned to normalcy, Delivery and Takeaway channel adoption is likely to remain elevated. Jubilant’s technology capabilities both customer-facing and back-end are a competitive advantage. The mobile ordering contribution to online order sales jumped from 38% at the end of FY16 to 97% by FY22. Domino’s app continues to be the highest-rated app in India within Foodservice on both Playstore and Appstore. It has a dominant share of orders from its own app leading to better control over customer data and targeted marketing. The Analytics and Insights function helps the Company analyze data streams almost on a real-time basis and get very sharp and actionable insights.
Risk Assessment
- Slower than expected expansion plan of the company.
- Increase in competition from existing and emerging brands.
- Same-store-sales growth trends weakening.
- Rise in cost inflation.
Conclusion:
As per the Report we Recommend BUY in Jubilant Food works Ltd.
Potential Upside in 6 to 12 Month is 29 – 35%
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